Bottom Line on Public Option


This won’t come as the slightest surprise to those versed in health care policy issues. But I fear it’s only barely permeated the health care reform debate in the country, certainly in Washington. And that’s this: the opposition to a so-called ‘public option’ comes almost entirely from insurance companies who have developed monopolies or near monopolies in particular geographic areas. And they don’t want competition.

Note, I’m not saying more competition. I’m saying any competition at all. As Zack Roth explains in this new piece 94% of the health care insurance market is now under monopoly or near-monopoly conditions — the official term of art is ‘highly concentrated’. In other words, there’s no mystery why insurance costs keep going up even as the suck quotient rises precipitously. Because in most areas there’s little or no actual competition.It’s something everyone can understand that if you have only one widget maker, widgets will get really expensive, and probably decline in quality. And the widget makers will pour lots of money into Congress or whatever the law-making power is, to keep their monopoly in place because their monopoly ensures locked in profits. It’s market theory 101 (or perhaps, rent-seeking 102, depending on your perspective.)

That’s basically what this is all about. Read the piece, it will open your eyes (if they’re not already) and make clear why the opposition to a public option is about preventing competition.

Late Update: As a side issue, my fear about the public option is that private insurers will use it to ‘cream’ their risk pools. It’s worth noting that the insurance companies’ opposition makes it clear that they’re not at all confident they’ll be able to do this. But here’s the concept, a common one in health insurance markets. Basically, the idea would be that private carriers will start cutting even more people from their rolls, dumping all the high risk individuals onto the public option pool. That’s great for them because it would put them even more into the business of insuring the healthy and the young — a highly profitable enterprise. It would also be bad for the public option since it would ensure that a disproportionate number of high health-risk individuals are in that pool, keeping costs high.

To be clear, I still strongly support the public option. I’m in the group of people who know enough about the policy issues to see this as a potential problem but probably not enough to see what the solution is or why it won’t be a problem in practice. In any case, the real tell is that the insurance providers are voting with their feet, or rather, their wallets, signaling that they believe it will do as the advocates intend, which is curtail the insurance companies’ ability to maintain monopoly profit margins.

Latter Update: A knowledgeable source on the Hill sends along this note …

The current health care reforms drafts, at least in the Senate, would create regional risk pools that drive out the incentive to “cream.”

In short, if Insurance Company A insured only the lowest-risk half of a given pool, it would have to pay a subsidy that goes to the company (or public plan) insuring the highest-risk members of the pool.

In other words, we would drive out the incentive to cream, while also making it illegal to deny coverage on the basis of a pre-existing condition.

CMS would manage that risk-balancing process, and has apparently become quite good at it. The Netherlands does something similar, so successfully that insurers actually seek out diabetics to insure.

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